Fixed vs Floating Interest Rates: Know Which One To Choose

Escalating prices of real estate accompanied by increased demand for housing led lending institutions to offer affordable home loans. Choosing between fixed and floating interest rates is tricky. The loan amount acquired pays off a substantial part of the required property value. Keeping in mind the convenience of borrowers, lenders provide features like easy repayment tenors and manageable EMIs.

However, borrowers need to consider a few factors when it comes to loan repayment. One of the crucial factors that affect the repayment amount is the home loan interest rate in India. It has a significant impact on the consolidated EMI (principal + interest) that needs to be paid throughout the tenor.

Under such circumstances, a concise and precise idea regarding interest rate is crucial as it will help you make an informed decision. The complexity comes up when settling on an interest rate is because there are primarily 2 types of rates – fixed interest rate and floating interest rate.

Fixed Interest Rates

A housing loan is usually spread across a tenor of up to 240 months, and the slightest alteration in interest rates creates a significant impact on the total repayment at the end of the tenor.

A fixed interest rate remains indifferent to market fluctuations throughout the loan tenor and is beneficial due to various reasons –

  • As a fixed home loan interest rate in India remains constant, it serves as the best option for those seeking low-risk monthly installments. The fixed EMIs ensure that no unforeseen stress is put on a budget of the borrower under any circumstance.
  • Individuals can use fixed interest rates as a deciding factor while choosing lenders. They can use the home loan EMI calculator and settle upon the reputed financial institution that offers the best rates in the market.
  • The fixed interest rate remains the same, even when MCLR undergoes a steep increase.

Floating Interest Rates

The floating home loan interest rate in India is subjected to changes based on fluctuations in the Marginal Cost of Lending Rate (MCLR) and market conditions. So, if the MCLR is revised, the floating interest rate also modifies accordingly, either upwards or downwards. It comes with multiple benefits –

  • Floating interest rates are always cheaper compared to a fixed rate of interest. Although floating rates may increase, it is likely to drop after a certain period.
  • If the revised MCLR is downwards, the floating interest rates will certainly fall.
  • These rates provide individuals with an option to save more money.

Each type of interest rate comes with its set of pros and cons. Borrowers should avail one based on their specific requirements. For the convenience of individuals, some leading financial institutions provide both types of interest rates. With their home loan, borrowers can avail their choice of interest rate along with lucrative features like

  • Easy balance transfer facility
  • No charges on foreclosure or part-prepayment
  • High-value loan amount up to Rs. 3.5 Crore
  • Quick loan approval and disbursal
  • Customised insurance scheme
  • Door-step services
  • Minimal documentation
  • Property dossier

This housing loan is also offered in assistance with government schemes like PMAY, which is especially beneficial for 1st time homeowners since it comes with even lower interest rates and helps one save substantially.

Borrowers can also enjoy home loan interest tax benefits under Section 80C and Section 24(b). They can claim tax exemptions of up to Rs. 2 Lakh on the interest payable and up to Rs. 1.5 Lakh on the principal repayment. However, the property must be in possession for up to 5 years at least.

Opt for the right type of interest rate, which suits your risk-taking capability, and purchase your dream property with a feature-rich home loan.

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Aara Jones

Hi! I have been a blogger for the past seven years and more. I love to write about different topics ranging from travel to health and everything related to lifestyle. This is my website and you are welcome to contribute to it. Just get in touch with your ideas! Email me at info@lifestyleglitz.com.

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